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1、JPM Agricultural Markets Outlook 2Q19Supply side constraints fuel agri commodity recoveryJune 2019Tracey Allen(44-20) 7134 6732 HYPERLINK mailto:tracey.l.allen tracey.l.allenJ.P. Morgan Securities plcSee the end pages of this presentation for analyst certification and important disclosures.1Despite

2、the softer outlook for global growth, demand side headwinds have faded into the periphery somewhat. However, US trade disputes are undermining the market share of US agri exports, not only to China amid the unresolved trade war, but the potential for US tariffs on Mexico the leading importer of US c

3、orn, also raises concern for additional retaliation and dislocations in US trade flows.Agricultural Markets Outlook Tangible supply side constraints will continue to drive agri commodity prices off the lowsWeather premiums returned to agricultural markets in 2Q19, prompting a vast improvement in per

4、formance which should be sustained in 2H19. Up 2% through 2Q19 to-date, the J.P. Morgan Agriculture Index is now leading the performance across the commodity complex this quarter.Unprecedented US planting delays drive concern for new crop supplies amid adverse conditions in other export regions, pro

5、mpting widespread investor short covering and commercial re-positioning. Weather risks are not subsiding, El Nio appears to be intensifying and grain prices are not yet at levels which destroy demand. Tangible supply side constraints across grain markets, and tightening fundamentals across the softs

6、 will continue to drive the agri commodity complex off the lows. We hold high conviction that these idiosyncratic factors which are tightening US and world agricultural fundamentals faster-than-anticipated will overshadow the bearish impact of a low growth / low inflation environment through 2H19.Tr

7、ade recommendations: we stay long the agri index and long ICE #11 Sugar in anticipation of a continued improvement in performance through 2H19.A G R I C U L T U R A L C O M M O D I T I E S Q U A R T E R L Y 2 Q 1 9Images: Pixabay1Supply side constraints fuel agri commodity recoveryNearby contract pr

8、ice YOY and YTD change (%)-12.9%-12.0%-7.6%-5.9%-5.6%-5.4%-3.2%-2.9%-2.9%-1.9%-1.2%-0.5%0.6%1.1%1.4%1.6%2.0%2.0%2.6%3.2%4.9%11.9%17.5%28.6%CME Live Cattle Euronext Wheat CBOT Kansas Wheat CME Feeer CattleA G R I C U L T U R A L C O M M O D I T I E S Q U A R T E R L Y 2 Q 1 9ICE Canola ICE Robusta Co

9、ffee ICE #2 Cotton Euronext Maize CBOT Soybeans MDE-Bursa Palm Oil BCOM Agri Index CBOT Soybean Oil CBOT WheatICE Cocoa London ICE NY Cocoa CBOT Soymeal Minneapolis Wheat JPMCCI Agri Index ICE Arabica Coffee ICE #5 White Sugar ICE #11 Raw SugarCBOT Corn CME Class III Milk CME Lean Hogs-20%The J.P. M

10、organ Agriculture Index has outperformed the broad commodity index through 2Q19, and appears to be recovering off multi-year lows. The rapid turnaround in performance mid-quarter has been led by a material grain supply shock, which we have long flagged and HYPERLINK /research/content/GPS-2952062-0 b

11、een positioned for (Agricultural Markets Outlook: Short covering risks ahead., Allen, 22 March).The timing of the supply led breakout and commencement of an uptrend in the BCOM Agriculture & Livestock Index has occurred at an interesting juncture of heightened risks for global growth, and unpreceden

12、ted US export impediments. The deterioration in the macro outlook, coupled with record soybean availability and large Latam exportable corn supplies will likely weigh on the extent of upside price recovery through 3Q19. BUT further supply side disruptions would likely fuel a recovery in grain prices

13、 to levels not seen since 2012/13.The intensification of the US - China trade war is now weighing more severely on the global growth outlook and acutely on business sentiment. We now expect China to maintain retaliatory tariffs on US imports well into 2020. While the possibility of a trade agreement

14、 before this point holds a low probability, it remains a significantly bullish albeit peripheral risk factor for agri markets.Looking into 2H19, ICE #11 Sugar remains our most bullish call, and at 15 USc/lb, our 4Q19 forecast calls for a 23% rally from spot, as the world market transitions to a defi

15、cit balance.Trade recommendations: we stay long the agri index and long ICE #11 Sugar in anticipation of a continued improvement in performance through 2H19.-10%0%10%20%30%40%2Q19YTD 2019Source: Bloomberg, J.P. Morgan Commodities Research, *as of close 6 June 20192Tangible supply side constraints wi

16、ll continue to drive agri commodity prices off the lowsJ.P. Morgan agri commodity price forecastsAgri Commodities1Q192Q19f3Q19f4Q19f1Q20f2Q20f3Q20f4Q20f201720182019f2020fCBOT WheatUSc/bu490475530550550570550550431473511555CBOT CornUSc/bu373390450470470450430430360362421445CBOT SoybeansUSc/bu90586088

17、0880900920900920982957881910ICE #11 SugarUSc/lb12.712.413.515.016.016.015.516.517.412.713.416.0ICE #2 CottonUSc/lb73.372.070.070.073.073.075.075.073.280.771.374.0MDE-Bursa Palm OilMYR/t2,0892,0502,3002,4002,5002,5002,6002,7002,8682,4132,2102,575Looking into 2H19, tangible supply side constraints acr

18、oss grain markets, and tightening fundamentals across the softs will continue to drive agri commodity prices off the lows. We hold high conviction that the idiosyncratic factors which are tightening US and world agricultural fundamentalsfaster-than-anticipated will overshadow the bearish impact of a

19、 low growth / low inflation environment through 2H19, and support a sustained recovery across the agricultural complex.The impact of food price inflation should not be underestimated through 2H19 off very benign levels. Weather risks are not subsiding, and grain prices are not yet at levels which de

20、stroy demand.US planted acreage expectations have reduced for corn (84.5 m ac), wheat (44.8 m ac), and cotton (13.6 m ac) relative to our March balances, while soybean planting will likely rise to 85 million ac, due to weather related delays elsewhere.US acreage will not be accurately known until Au

21、gust- September, and given the late planting and delays in progress, production forecasts are very subjective at this point.Trade recommendations: stay long the agricultural complex via an index, stay long ICE #11 Sugar October 19 13.5 15USc/lb call spread, short 12.5 USc/lb put.A G R I C U L T U R

22、A L C O M M O D I T I E S Q U A R T E R L Y 2 Q 1 9Source: CBOT, ICE, Bloomberg, J.P. Morgan Commodities ResearchNote: All Forecasts are period averages.2019/20 US primary row crop planting estimates Million ac19/20f Jun1919/20f Mar 19USDA19/20f18/19actual YOY% YOYCorn84.591.89289.1-4.6-5%Wheat44.84

23、6.94747.8-3-6%Soybeans8584.58589.1-4.1-5%Cotton13.614.314.2514.1-0.5-4%Major row crop total228237.5238.3240.1-12-5%Source: J.P. Morgan Commodities Research3ICE #11 Sugar0.03Sugar production in Asia exceeds expectations once again in 2019/20, led high higher-than-expected cane acreage in India and Th

24、ailand, reducing the size of the projected 2019/20 deficit b) Brent crude oil15 USc/lbBearish:tracks towards our low case price scenario, average of $58/bbl c)World sugar consumption remains flat YOY in 2019/20, holding the balance at neutral levels d) Global growth capitulates into year end amidunr

25、esolved trade uncertainty, prompting EM FX weakness11 - 14 USc/lbBullish23% Brazilian Centre/South sugar mix finishes below 36%, reducing production below 26 million tonnes,constraining raw sugar exportable supplies b)Weather related production losses and a low C/S sugar mix drive a deeper deficit i

26、n 2019/20 to -6 million tonnes, e.g. persistent and strong El Nio reduces caneBullish:yields in sugar production across Asia c)Brent crude oil tracks our average high case price scenario of$71/bbl in 2019, amid supply side tightness and heightened geopolitical risks d) Brazilian real appreciates abo

27、ve our forecast of USD/BRL 3.8 through 3Q19 and 3.9 in 4Q19, supporting ethanol production economics.15 - 20 USc/lbMDEB Palm OilN/AGlobal growth capitulates through 2H19, weighing on industrial demand b) Brent crude oil tracksA G R I C U L T U R A L C O M M O D I T I E S Q U A R T E R L Y 2 Q 1 9Bul

28、lish2,400 USD/T18%Bearish:Bullish:towards our low case price scenario, average of $58/bbl c) South East Asian production surprises to the upside through 2019/20, reducing the risk of a production deficitEl Nio reduces rainfall across South East Asia weighing on production in Indonesia and Malaysia,

29、drawing down exportable stocks b) Brent crude oil tracks our average high case price scenario of$71/bbl in 2019, amid supply side tightness and heightened geopolitical risks c) Global growth surprises to the upside, supporting food and industrial palm oil demand d) US soybean production disappoints,

30、 driving a recovery across vegetable oil prices1,850 - 2,100 MYR/T2,200 - 2,800 MYR/TCBOT Corn0.16Record high Latam output through 2019/20 reduces demand for US corn further, reducing the riskBullish470 USc/bu13%Bearish:Bullish:premium priced into the market b) Contractionary global growth outlook p

31、rompts a decline in industrial corn demand through 2020 c) US and China remain in a persistent trade war for the duration of the 2019/20 marketing year, stifling growth potential and driving prolonged uncertainty across the complexa) US planted acreage declines below 83 million ac, with a national y

32、ield below 165 bu/ac, driving prices to levels which destroy demand, $6/bu b) Domestic demand in Latam rises as the animal protein sector increases feed demand in an effort to increase protein supply to China c) Weather related production setback in another export market eg Ukraine or Latam cuts exp

33、ortable supplies, driving prices to levels not seen since 2012/13 d) The US and China reach a trade agreement and China removes tariffs on US agri product imports350 - 400 USc/bu450 - 550 USc/bu4CBOT Wheat-0.15Russian production exceeds expectations of 77 million tonnes, boosting export availability

34、 b)Bullish550 USc/bu12%Bearish:Bullish:Exceptional US dollar strength weighs on US export potential c) US corn yields exceed expectations, mitigating the potential growth in feed wheat demandWeather related production setbacks reduce exportable wheat production below already tight levels eg hot and

35、dry conditions in Russia, Canada and Australia fail to subsideUS export market share expands beyond expectations on a softer USD, and declining Russian output in 2019/20 c) US - China trade deal is negotiated in 2H19, driving heightened fun flow through the agri complex and supporting corn demand460

36、 - 520 USc/bu560 - 700 USc/buICE #2 Cotton-0.56The global growth slowdown through 2H19 has a materially bearish impact on world textileA G R I C U L T U R A L C O M M O D I T I E S Q U A R T E R L Y 2 Q 1 9Neutral70 USc/lb2%Bearish:Bullish:consumption, driving negative cotton consumption growth in 2

37、019/20 b) The US imposes 25% tariffs on all imports from China, stifling Chinas apparel and textile exports and raw cotton demand c) Abundant soil moisture in the US drives exceptional yield performance, lifting production 23 million balesa) Restocking led price recovery - China increases cotton imp

38、orts to 11 million bales through 2019/20, while other leading origins take the opportunity to purchase cotton stocks amid a more constructive longer term outlook b) El Nio weighs on the monsoon, reducing rainfall across India and Pakistan, as well as rainfall across Australia reducing production and

39、 export potential c) The US and China recommence negotiations and China removes retaliatory tariffs on US agri imports60 - 70 USc/lb75 - 90 USc/lbCBOT Soybeans-0.35a) US and China remain in a persistent trade war through 2019/20, stifling global growth potential anddriving world soybean stocks to re

40、cord high levels b) African Swine Fever spreads more rapidly through880 USc/buBearish:Chinas hog herd, increasing culling and reducing soybean meal demand belowcurrent expectations. Chinas soybean crush falls below 83 million tonnes in 2019/20 c) Chinas soybean imports decline below 85 million tonne

41、s in 2018/19 d) Latam maintains soybean acreage and builds extensive stocks through820 - 880 USc/buNeutral1.6% 2019/20a) US soybean plantings decline below 82 million ac, reining in new crop availability b) Brazilian realBullish:appreciates to levels stronger than USD/BRL 3.5 in 2019, enhancing rela

42、tive competitiveness of US exports c) China commences purchases of US soybeans in 2020 as a good will gesture during negotiations d) soybean meal demand surges on corn production constraints.950 - 1,150 USc/bu5Change in world agri commodity inventories% change 1Q19 v 4Q18WheatSugarSoybeanA G R I C U

43、 L T U R A L C O M M O D I T I E S Q U A R T E R L Y 2 Q 1 9CornCottonPalm oil-25%-20%-15%-10%-5%0%5%10%JPMC 19/20 (f)JPMC 18/19 (f) USDA 19/20 (f)USDA 18/19 (f)Source: USDA, GreenPool Commodities, J.P. Morgan Commodities ResearchWheat: world exportable wheat stocks open 2019/20 at the tightest leve

44、l since 2014/15, and are vulnerable to a consecutive draw through the year. World wheat demand is susceptible to upside revision if feed quality becomes available, due to reduced US corn availability. Weather risks are lurking for wheat production, with dry conditions across major exporters particul

45、arly Russia, Canada, Australia and scattered pockets across the EU. The US is well placed to increase export market share through 2019/20, as tight Russian stocks will likely pull back exports for a consecutive year, to 36 million tonnes.Corn: world corn stocks will draw by the most on record in 201

46、9/20, as US corn production has been cut by 47m tonnes (1.84m bu) from our March estimate.Latam corn production (18/19) is revised higher, increasing exportable supplies to record high levels, which combined with soybean meal availability will buffer some of the trade flow impact of the US corn supp

47、ly shock in the short term.Feed demand and year round E15 sales in the US will likely support sustained consumption growth in 19/20 despite rising prices. Realistically, US acreage will not be accurately known until August/September, and given the late planting and delays in progress, production for

48、ecasts are very subjective at this point.Soybeans: There is no respite in sight for bulging soybean inventories, despite a US production downgrade, as African Swine Fever (ASF) will continue to weigh on Chinas feed demand. The prolonged US-China trade war and likelihood that China will maintain 25%

49、retaliatory tariffs on the US into 2020 will likely drive US inventories to fresh highs through 2019/20. Latam soybean premiums increased sharply through May as US China trade discussions deteriorated, and will likely remain elevated through the ongoing dispute.Despite persistent demand headwinds fr

50、om ASF, rapidly rising corn prices should draw more soybean meal into feed rations, supporting CBOT Soybean Meal prices, and crush margins. Chinas soybean import demand is held at 85 million tonnes for 2018/19 and 2019/20, we see little incentive for China to build inventories with domestic demand p

51、ressures and available exportable inventories in Latam.6deficit, cotton inventories continue to draw despite trade headwindsChange in world agri commodity inventories% change 1Q19 v 4Q18WheatSugarSoybeanA G R I C U L T U R A L C O M M O D I T I E S Q U A R T E R L Y 2 Q 1 9CornCottonPalm oil-25%-20%

52、-15%-10%-5%0%5%10%JPMC 19/20 (f)JPMC 18/19 (f) USDA 19/20 (f)USDA 18/19 (f)Source: USDA, GreenPool Commodities, J.P. Morgan Commodities ResearchSugar: The world sugar balance is transitioning to deficit, watch for rising volatility in 3Q19 as El Nio related production risks are revived. Brazils C/S

53、sugar mix needs to rise from current levels to prevent a deficit beyond -4 million tonnes from emerging. But record Brazilian ethanol demand will continue to incentivize Centre/South mills to maximize the ethanol mix, and ICE #11 Sugar will need to rise13.5 USc/lb through 3Q19 to drive up the sugar

54、mix. The Monsoon should be monitored closely, as cane land in India and Thailand is already expected to decline and weigh on production. El Nio is intensifying, and drier-than-normal conditions would intensify the loss of cane tonnage through 2019/20. Sugar stocks remain elevated in India, however t

55、he flow of subsidised exports has not been overly burdensome due to depressed world prices.Cotton: The outlook for a build in US cotton inventories through 2019/20 to over 6 million bales distorts the bullish world market outlook for a persistent decline in world cotton stocks. The world stocks-to-u

56、se ratio is projected to contract to 42% in 2019/20, the tightest level since 2010/11, despite a reduction in our expectations for world cotton consumption (relative to our March estimate). US trade disputes are having a multi-pronged bearish impact on the cotton market. The May increase US tariffs

57、to 25% on $200 billion of imports from China has curbed sales of cotton yarn from China to the rest of the world, and is interrupting sales of textiles and apparel to the US. While a low probability, the prospect of US-China trade agreement and removal of retaliatory tariffs is now most bullish ICE

58、#2 Cotton.Palm oil: Production expectations in Indonesia have risen over the quarter, led by a lower replanting rate than our prior assumption. The presence of El Nio and prospect of a drier-than-normal monsoon raise production concerns across South East Asia. Consumption continues to perform strong

59、ly, despite abundant soybean oil availability, led by industrial demand growth. We continue to project a contraction in world palm oil inventories through 2019/20, which should start to drive spot and forward prices higher through 2H19. We maintain a bullish outlook for Brent crude oil from current

60、levels. The contractionary global growth environment may weigh on crude prices if demand disappoints. This is a primary downside risk factor for the vegetable oil complex.7The intensification of the US - China trade war is now weighing more severely on the global growth outlook and acutely on busine